I found the issue, it was the digital optical input on the 360 Audio/Video wire. It holds the wire very loosely, so when ever it would jiggle the sound would cut out. I taped it a bit and now it is fine. It's fine though since I won't need to take the cable out until LBP releases, so that gives me a good week or so of Fable II awesomeness.

I love the dog... especially when he rips out fallen enemy's throats... that's awsome

@Euphoria14

You should pick up optical splitter. I used that on mine so both PS3 and 360 go into the same optical input on my receiver. It works like a charm. Only thing is you can't have both on at the same time (which usually not the problem most of the times ..)

This will help on wear and tear on constantly plugging and unplugging it.

http://www.amazon.com/s/ref=nb_ss_gw?url=search-alias%3Daps&field-keywords=optical+splitter&x=0&y=0

There are plenty on amazon, you can even get the fancy one with switch if you have both 360 and PS3 on together a lot. If not the cheapo $4.00 bi-directional one work just fine.

^ Thanks mysticD

That will work wonders. It was always unplugging, running around the back of the TV to the other side just to reach the other system.

I keep both consoles outside of the entertainment center on seperate platforms, I treat them like gold.

http://kotaku.com/5067285/some-fable-ii-players-report-freezing-issues

there seems to be other problems with the game. Hopefully MS fix them.